High numbers of Swedes are employed in the public sector, such as this nurse in a Stockholm hospital. Photograph: Graham Turner

According to liberal thinkers, Scandinavian countries should have drowned in the current economic crisis with their bloated public sectors and a nanny-state mentality that stifles individual creativity.

But the opposite has happened. Sweden, Denmark and Norway, where many people pay 50% of their income in taxes – with some even paying 60% – are coping better than most, in particular better than Britain.

"The outlook for these countries is good," says Christian Ketels, an economist at the Harvard Business School and the Stockholm School of Economics. "They are going to return to normal quicker, and in better shape, than everybody else."

Scandinavia has seen no protests, unlike in the UK, where some workers have been demanding British jobs for British people. Nor have there been street demonstrations or incidents of "bossnapping" like those in France, where laid-off employees kidnapped their superiors in protest.

Instead, there has been a quiet confirmation among most people here that their way of doing things beats the low-tax, low-welfare system pushed by the US and, increasingly, the UK. In a survey in July, Danes cited their welfare system as their society's proudest achievement.

"There's certainly been a feeling of 'we told you so'," says Ketels. "People feel they have a solid system and that they don't have to follow what the US and the UK are saying is best."

Not that these small, export-led economies have not been hit by the decline in global trade. All the Scandinavian governments have had to offer bank rescue plans and stimulus packages. Some manufacturers, such as the carmaker Saab, have gone bankrupt. Unemployment is on the rise too – 9.8% in Sweden, 3.8% in Denmark and 3.1% in Norway.

Overall, these countries' high-tax, high-benefit welfare systems have been acting as stabilisers to their economies. If you lose your job in Sweden, you can expect to receive 80% of your wages for the first 200 days of inactivity, up to 680 kronor (£55) per day, dropping to 70% for the following 100 days. If you lose your job in Norway, you will receive 62% of your previous salary for up to two years.

"In these days, we see that a strong welfare state, together with free education and healthcare, has acted as a buffer that stabilises the economy," says Kristin Halvorsen, Norway's finance minister.

The size of the public sector has been helpful, too. While in Britain one in five workers is employed in the public sector, the proportion is much higher in Scandinavia. In Norway, for instance, it is about one in three, and they have money in their pockets.

"All the people working in the public sector have secure jobs and they had a huge pay increase in 2008," says Espen R Moen, a professor of economics at the Norwegian School of Management. "They have never had as much money as now. This keeps demand up."

Ketels points out that Denmark, Sweden and Norway had very sound public finances to start with. "They all had budget surpluses when the crisis happened because they had balanced their accounts," he says.

Norway shines especially brightly: unlike Britain, it is saving its North Sea oil and gas revenues into a sovereign wealth fund, now worth 2.384 trillion kroner (£228bn), or 1.4 times its GDP. Only 4% of the fund goes into the national budget, the rest is saved for future generations. So when Norway needed to find money to stimulate the economy, it was able to find it without having to cut public budgets or increase taxes, as Britain is set to do.

In the 1990s, the Scandinavian countries underwent difficult financial crises during which they introduced tighter regulation of their banking sectors. That has protected them during the current downturn.

In addition, they have very competitive economies. Denmark and Sweden come third and fourth respectively in the World Economic Forum's competitiveness survey for 2008-2009, behind the US and Switzerland (the UK comes 12th).

This competitiveness is underpinned by their well-funded and large public sectors. In its survey, the World Economic Forum argues that high levels of investment in education and training have been the key to success. "This has provided the workforce with the skills needed to adapt rapidly to a changing environment and has laid the ground for their high levels of technological adoption and innovation in recent years," it says in the report.

"We notice more interest around the Nordic model because we manage to combine productivity, growth and welfare," says Halvorsen, the Norwegian finance minister. "A large public sector is a buffer against the turmoil of the markets."